Korea readies for IMF financial sector assessment next year

The International Monetary Fund (IMF) will conduct a financial sector assessment on South Korea to determine the resilience of Asia’s fourth-largest economy at a time of domestic economic slowdown, global monetary tightening and high market uncertainty.

Korea’s Financial Services Commission plans to convene a meeting next week with the Ministry of Economy and Finance, Financial Supervisory Service and the Bank of Korea to prepare for the IMF’s assessment next year.

The IMF launched the Financial Sector Assessment Program (FSAP) in 1999 as a comprehensive and in-depth assessment of a country’s financial sector. It analyzes the resilience of the country’s financial sector, the quality of its regulatory and supervisory framework, and its capacity to control financial crises. Based on its findings, FSAPs produce micro- and macro-economic recommendations tailored to country-specific circumstances.

This will be Korea’s third assessment after 2003 and 2013. Some of the main risk factors that are said to come under intense scrutiny are the country’s mounting household debt and aging population.

Korea’s household debt, which has snowballed from 1,000 trillion won ($893.4 billion) in 2013 to a record 1,500 trillion won, is seen as a major drag on its already slowing economy. Its population is also aging faster than most other economies. In August, the country officially became an “aged society,” in which the senior population aged 65 and older exceeds 14 percent of the total population.

Korea’s financial soundness indicators point to a stable system. As of late June, the BIS capital adequacy ratio of the banking sector - the minimum capital adequacy ratio that banks must attain under the Basel III standard - was 15.48 percent. Its liquidity coverage ratio of 122.9 percent and bad debt ratio of 1.06 percent were also considered sound by international standards.